This is turn 60 (8/6/1942), one turn after I cut off just about every Soviet unit in the North. It takes a few more turns after this to destroy all the units in the pocket.

From the far right upper corner, the single red unit is the 60th Motorized Division of the 4th Panzer Army that I used to capture the northern most rail hex and effectively cut the Soviets off from supply.

I figured AI but having never played against it, not sure really how smart or dumb it really can be.

It has a hard time in my experience seeing very large pockets in the making. It tries to make up for this apparently by being able to spawn units at no AP cost. Can still be victimized with manpower crunch. Taking a Front out of play by manipulating the game rules doesn't make any sense in real terms.

The AI has trouble with organisation. I've had a look a few times and it was rather messy. taking out a front HQ won't make much of a difference actually. Probably an area to look into for improvement . I suppose it can be partly compensated through bonus, but the AI has a hard time getting some sort of organisation and that should cause a lot of failed die rolls due to the mess.